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US Treasury yields were higher by 6bp across the curve, partly reversing the move seen on Friday. Credit and equity markets were closed due to a federal holiday on account of the Martin Luther King Jr. Day. On the data front, Empire Manufacturing for January is due later today and the US Retail Sales print is due tomorrow.
European equity markets ended lower. Credit markets in the region saw the European main CDS spreads widen by 1bp and crossover spreads widen by 8bp. Asian equity markets have broadly opened weaker today. Asia ex-Japan IG CDS spreads widened by 1.1bp.
Santander raised €1.25bn via a 10.25NC5.25 Tier 2 bond at a yield of 5.063%, 30bp inside initial guidance of MS+250bp. The subordinated bonds are rated Baa2/BBB+/BBB, and received orders of over €4.8bn, 3.8x issue size.
Credit Agricole raised €1.5bn via a 10Y senior preferred bond at a yield of 3.767%, 27.5bp inside initial guidance of MS+115bp. The notes are rated Aa3/A+/AA-, and received orders of over €5.9bn, 3.9x issue size. The new bonds were priced ~11bp tighter to its senior non-preferred 4.375% 2033s that yield 3.88%.
These are bonds issued by companies to specifically fund projects with social benefits (new/existing), which should be mentioned in the prospectus. ICMA’s social bond principles set out a standard covering four elements as follows:
– Use of proceeds (range of 6 categories but not limited to them)
– Process of evaluation and selection of social projects
– Management of proceeds
– Reporting Examples of projects for social bonds include affordable housing, socioeconomic empowerment, essential service access and projects of their like.
Shriram Transport Finance has launched a 3.25Y social bond offering at a 7% area.
On Bond Bulls Fixated on Fed-Rate Cuts Risk Getting Smacked Around
Robert Tipp, chief investment strategist at PGIM Fixed Income
Fed is going to “wait a long time to make sure they have evidence” of disinflation… “And the evidence, the data, is bouncy. So a posture here that makes a lot of sense is to be relatively neutral “
Simon White, macro strategist at Bloomberg
“The dial hasn’t moved much on March rate-cut expectations… liquidity, i.e. reserves, have become the Fed’s primary de facto reaction function”
On Interest Rate Cuts Not Being Good News for Profit Forecasts, History Shows
SocGen’s Andrew Lapthorne
“Declining profits and interest rates tend to go hand in hand… Is this the calm before the storm?”
Kyle Rodda, senior market analyst at Capital.com
“Either earnings estimates are revised lower, and prices move lower to reflect that, or interest rate cuts are priced out”
“Japanese long-term yields won’t climb much beyond 1%, even if the BoJ revises its yield curve control program or raises its short-term policy rate… A single decision by the BOJ won’t likely have a major impact on the market”